Is a Notice of Demand u/S.138(B) of the N.I. Act Given by An Advocate Valid or Sufficient

(Joseph Thattacherry, Advocate, Changanacherry)

It is the common practice among advocates to issue notice to others under instructions from their prospective clients to the opposite parties. Now, the question discussed herein is about the legality of such a notice given by an advocate making a demand for payment of cheque amount from the drawer of a dishonoured cheque u/S.138(b) of the N.I. Act as amended by Act 66/88 (hereinafter referred to as the Act).

S.138 of the Act is undoubtedly a penal provision and as such it is settled law that its provisions have to be strictly complied with, in order to make the drawer of a dishonoured cheque criminally liable. S.138 of the Act mandates that "nothing contained in this Section shall apply unless" Clauses (a), (b) & (c) are complied with. (emphasis supplied).

In order to make the drawer liable all the above conditions precedent, have to be complied with. The mandatory nature of the section gives no choice to the courts to show any laxity in the non-fulfilment of the above conditions.

Clause (b) of S.138 of the Act requires the fulfilment of some pre-requisite conditions in order to make the section applicable. One among those conditions is that the payee or the holder in due course, of the cheque should make a demand for payment of the cheque amount. From a reading of clause (b) it is crystal clear that the notice of demand should be made by the payee or the holder in due course as the case may be (emphasis supplied) and not by anybody else. That is the clear intention of the Parliament. Had its intention been otherwise, it would have employed the words "or by anybody or his behalf" or likewise, as we find in S.106 of the Transfer of Property Act, where the notice of termination of the lease has to be given by the lessor or the lessee. The section further says that every notice under this section must be in writing signed by or on behalf of the person giving it". Since such a provision is conspicuiously absent in S.138(b) of the Act no court can supply such words enabling other persons also to give notice on behalf of the payee or holder in due course, which the Parliament in its wisdom has deliberately omitted to insert. Any construction or interpretation by adding new words to payee or holder in due course so as to enable other persons also to issue notice, especially when it is prejudicial to the interest of the drawer accused, is unwarranted. When the Parliament has categorically specified that the payee or the holder in due course as the case may be has to make the demand by giving notice in writing to the drawer in order to make S.138 applicable, if any other person makes the demand by giving notice such a notice does not conform to the provisions of law and is invalid and S. 138 will not apply.

Similar words are used in S.142 of the Act. Therein Clause (a) says that no court shall take cognizance of any offence punishable under S.138 except upon a complaint in writing made by the payee or as the case may be the holder in due course of the cheque. Interpreting the clause Hon'ble Mr. Justice Pratap Singh of the Madras High Court held in 1994 (2) KLT SN Case No.23 at page 17, that a manager or any person authorised by the company can represent it and file a complaint. But the very same Judge after further consideration of the section subsequently in a case reported in 1995 (1) KLT SN Case No.19 at page 14 took an opposite view. In that case, the Manager of 4 Companies filed 3 complaints as a person duly authorised by the company to file the complaints. In that case, the court held "in as much as he is not the payee or holder in due course of the cheque he cannot file these complaints as per the provisions of the Act. Thus a person who is competent to file the complaint under S.138 of the Act must be payee or holder in due course. By no stretch of imagination, it can be stated Selvamany who is the Manager of the Company is the payee or holder in due course". Hon'ble Mr. Justice Narayanan Nambiar held as reported in 1996 (1) KLT 398 that "a combined reading of the provisions of S.138 and 142 of the Act will make it clear that it is only the payee or holder in due course who can file a complaint". It was a case in which the son of the deceased payee filed 3 complaints under S.138 of the Act, in his capacity as the executor of the will of his father. The complaints were quashed on the ground that the complaints were not made by the payee or holder in due course. So, in the light of the above decisions the words payee or holder in due course used in S.138(b) also cannot be construed so as to include anybody else other than the payee or holder in due course. Hence, it is submitted that a notice of demand given under S.138(b) by an advocate under instructions by a client is not in compliance with the provision and is invalid and insufficient. As such S.138 of the Act will not apply.

S.198, 198(A), S.199 of Cr.P.C. say that no court shall take cognizance of offences described therein, except upon a complaint made by the person aggrieved by the offence or by same persons specified therein or with the leave of the court by some other persons. Thus, with the leave of the court only can a complaint be instituted by somebody else other than person mentioned therein. So, wherever the Parliament permits persons other than the aggrieved party, it does so in so many words. So long as it is not done in respect of persons end tied to issue notice Under S.138(b) the restricted meaning above should be given. However no leave of the court could be obtained while giving a notice of demand. So a notice of demand should be given by the payee or holder in due course alone.

In 1993 (2) KLT 698 the question raised was "can the payee or holder in due course of a cheque file a complaint in court as per S.142 of the NI Act, through his power of attorney holder. Hon'ble Justice Mr. K.T. Thomas held that be can. One of the reasonings is that a power of attorney holder can do everything empowered by the donor, except where the acts to be performed is personal in character. Here in the case of a notice under S.138(b), the right to demand and to receive the cheque amount is indeed a persona] right. So that reasoning is not applicable in the case of a notice of demand. Another reason was that if the payee or holder in due course falls ill before the stipulated period or if he has to leave the station owing to unavoidable reasons, it would not be in the interest of justice to construe the provision as constraining a restriction that the complaint should be made by the payee or the holder in due course, as the case may be, personally. But such considerations has no relevancy or application in the case of a notice of demand by the payee or holder in due course to be issued personally. Because even in his sick bed at home or in I.C. unit, either illiterate or incapacitated, he could very well affix his signature or thumb impression in a notice of demand in his own name but written by somebody else. Again even if he is abroad he could easily send a telegram or fax a message demanding payment, so that it would reach the drawer within hours. Hence, the reasonings in support of holding that the power of attorney holder is also competent to file a complaint in the interest of justice, will not hold good in the case of a notice of demand under S.138(b) issued by anybody other than the payee or holder in due course. The observation in the decision that a complaint can be filed by an agent is only obiter dicta. Its various aspects and impacts were not considered in the judgment. If that be so any person could easily claim that he is an agent of the payee or holder in due course, the only restriction being that he should be a major and of sound mind. If an advocate could issue a valid notice of demand, why not his clerk or his office typist could also issue such a notice of demand. Such a situation was never intended by the Parliament.

Assuming that a donee of a power of attorney of the payee or holder in due course could validly issue a notice of demand, since the advocate who issues such a notice is not a power holder of the payee or holder in due course, notice issued by him is invalid and not in conformity with Clause (b) of S.138 of the Act. Hence, S.138 of the Act will not apply if a notice of demand under S.138(b) is not given by the payee or holder in due course. There is no difficulty for an advocate to prepare a notice of demand in the name of the payee or holder in due course himself and ask him to sign and send it to the drawer of the cheque - that bounced in strict compliance with the provision of law.

Delay in Filing of Application to Set Aside Arbitration Award - Is Condonable?

(By M/s. H.B. Shenoy & Ashok B. Shenoy, Advocates, Ernakulam)

It seems to be a prevalent view in the field of Arbitration Law that an Award can be set aside by the court upon an application under S. 33 of the Arbitration Act, 1940 only if the application thereof is filed within 30 days from the date of service of notice of the filing of Award and in cases where such application is filed beyond 30 days, the v Court has no jurisdiction to condone the delay by invoking S. 5 of the Limitation Act, 1963. ThisviewissupportedbyaDivisionBenchdictaoftheKeralaHighCourtin5tote of Kerala v. Sivan Pillai: 1997 (1) KLT 556. The reasoning given by Their Lordships to uphold this view is that S. 5 of the Limitation Act 1963does not apply to an application seeking to set aside an Arbitration Award. This view seems to be inconsistent with the express words employed in S. 5 of the Limitation Act, 1963.

No doubt, the general law as laid down in S. 3(1) of the Limitation Act 1963 is that every suit instituted, appeal preferred or application made after the period prescribed in First Schedule of the Act shall be dismissed. However, this general rule is subject to the exception contained in S. 5 of the Limitation Act 1963 which expressly provide for the extension of time in the case of any appeal or any application other than those under O. 21 of the Code of Civil Procedure, if the appellant or applicant satisfies the Court that he had "sufficient cause" for not filing the proceeding within the period prescribed. In other words, the Court is given the power to condone the delay and admit any appeal or any application notwithstanding having it filed after the expiry of the prescribed period of limitation. S. 5 of the Limitation Act 1963 reads as:'

"Any appeal or any application, other than an application under any of the provisions of O. XXI of the Code of Civil Procedure, 1908, may be admitted after the-prescribed period if the appellant or the applicant satisfies the Court that he had sufficient cause for not preferring the appeal or making the application within such period."

From the express words employed in the above statutory provision, it can be seen that it applies to: (a) appeals; and (b) applications other than those under O.21 of the Code of Civil Procedure.

Compared to the aforesaid statutory law now prevailing under S. 5 of the Limitation Act 1%3; the correspondent old statutory provision contained in S. 5 of the old Limitation Act 1908 covered, besides appeals, any applications for review of judgments, applications for leave to appeal and applications to which the section was made applicable by or under any enactment for the time being in force. This would be I amplified on a reading of S. 5 of the old Limitation Act 1908 which reads as:

"Any appeal or application for a review of judgment or for leave to appeal or any other application to which this section may be made applicable by or under any enactment for the time being in force may be admitted after the period of limitation prescribed therefore, when the appellant or applicant satisfies the Court that he had sufficient cause for not preferring the appeal or making the application within such period."

The old statutory provision restricted and confined its application to a very restricted category of applications expressly specified therein, only 3 in numbers. As against that, the present statutory provision in S. 5 of Limitation Act 1963 has been considerably enlarged in its scope. The present section, as would be revealed by the express words therein, automatically applies to all applications except those under O. 21 of the Code of Civil Procedure. From the express words therein, it can be safely concluded that while under the old Limitation Act 1908 power for condonation of delay upon sufficient cause being shown was not available to all applications; under the prevalent Limitation Act 1963 such power of condonation of delay is available in cases of all applications. No doubt, an application to set aside an award under S. 33 of the Arbitration Act 1940 did not fall within the purview of S. 5 of the old Limitation Act 1908, for none of the enactments including the Arbitration Act did not provide that the powers contained in S. 5 of the Limitation Act 1908 would apply to such an application. However under the new Limitation Act 1963 when the scope and ambit was widely enlarged and all applications fall within the purview of S. 5 of the new Limitation Act. When that be so under the new Act, S. 5 would be definitely applicable to an application seeking to set aside an award under S, 33 of the Arbitration Act. In this context, it is worth noting that under the Limitation Act, in the First Schedule wherein the period of Limitation for such proceeding is specified, the proceedings has been classified into three divisions, namely 'Suits', 'Appeals' and 'Applications'. And the statutory schedule thereof classifies an Application to set aside an arbitration Award, as an application under the third division. The Act thereof has thus expressly construed and considered it purely as an application and a different nature, that of a suit can never be showered on it for the purpose of considering the application of S. 5 to it.

The Division Bench of the Kerala High Court omitted to take notice of above statutory provision contained in S. 5 of the Limitation Act 1963 while rendering its decision in State of Kerala v. Sivan Pillai : 1997 (1) KLT 556. Intact the Division Bench had relied on the law laid down by the Supreme Court in Madanlal v. Sunder Lai: AIR 1967 SC 1233: by the Bombay High Court in Hastimal Dalichand Bara v. Hiralal Motichand Mutha : (AIR 1954 Bom 242) and by Nagpur High Court in Kawalsingh Akbar v. Baldeosingh Akbar : (AIR 1957 Nagpur 57); which are actually precedents on the old statutory law contained in the S. 5 of the Limitation Act 1908 which has been later on superceded and enlarged in scope by S. 5 of the new Limitation Act 1963. Admittedly S. 5 of the old Limitation was not made applicable to applications under S. 33 of the Arbitration Act. This underwent change and a new S.5 under Limitation Act 1963 brought within its ambit all applications including applications under S. 33 of the Arbitration Act. However, this most important aspect with regard to change of statutory law since the aforesaid 3 prior precedents, was unfortunately not brought to the notice of the Division Bench of the Kerala High Court.

On an over all view S. 5 of the new Limitation Act expressly lays down that any applications would fall within its ambit and there seems to be not even a slightest implication in any of the provisions of the Limitation Act 1963 to exclude an application under S. 33 of the Arbitration Act from the purview of S. 5 of the Limitation Act 1963. When that is so, delay in filing of an application to set aside an Arbitration Award, would be condonable in exercise of the powers under S. 5 of the Limitation Act 1963; even if the application thereof is filed beyond 30 days from the date of service of notice of the filing of the Award. The Division Bench dicta in State of Kerala v. Sivan Pillai : 1997 (1) KLT 556, it is respectfully submitted does not enunciate the correct view and it requires re-consideration.

Impact and Implication of Section 163A of the

Motor Vehicles Act, 1988

(P. Vijayaraghavan, M.Sc., L.L.B., Advocate, Ernakulam)

Act No.54 of 1994 has brought various important amendments to the Motor Vehicles Act of 1988. These amended provisions of Law came into force with effect from 14-11 -1994. As per the 1994 amendment a new benevolent provision i.e., S.163-A has been incorporated by the Parliament. This beneficial piece of legislation must have been discussed at length but its application is yet to be understood in the correct perspective of Law. The Claimants are not fully aware of the impact of this section, the legal practitioners are a bit confused and the Tribunals are groping in the dark regarding its proper application.

The news media is also publishing articles regarding the application of the said provision making the public more and more confused. Misinterpretation given to a benevolent provision may sometimes nullify the very intention of the legislature. Therefore, a discussion on the application of this Section is quite relevant. S.163-A inserted as per 1994 amendment reads as follows:—

"163-A. Special provision as to payment of compensation on structured formula basis—

1. Notwithstanding anything contained in this Act or in any other law for the time being in force or instrument having the force of Law, the owner of the motor vehicle of the authorised insurer shall be liable to-pay in the case of death or permanent disablement due to accident arising out of the use of motor vehicle, compensation as indicated in the second Schedule to the legal heirs or the victim, as the case may be.

2. In any claim for compensation under sub-section (1), the Claimant shall not be required to plead or establish that the death or permanent disablement in respect of which the claim has been made was due to any wrongful act or neglect or default of the owner of the vehicle or vehicles concerned or of any order person.

3. The Central Government may, keeping in view the cost of living by notification in the official Gazette, from time to time amend the second schedule.

The object behind the introduction of this noval section is to ensure payment of compensation on a structured formula basis so as to enable the injured claimant having sustained permanent disablement and the legal heirs of the deceased to get a minimum assured reasonable sum as damages irrespective of the fact whether the injured or the deceased had contributed to the cause of the accident. In other words even if an accident had occurred solely due to the negligence of the injured or the deceased, the injured or the legal heirs of the deceased as the ease may be are entitled to claim compensation. In such a situation they need not plead and prove negligence. This is made clear in sub-section 2 to S.163 A. Moreover this section is applicable in fatal accident cases and also when the injured sustains permanent disablement due to the accident. For other types of injuries and also for compensation for property damage, the remedy still lies under S.166 of the Act. In short, the purpose underlying the enactment is to provide immediate and urgent relief to the hapless and helpless victims of a motor vehicle accident. Before the introduction of S.163A, the same benefit was available to the Claimants so far as a claim under S.140 of the M. V. Act was concerned. In cases of death the Claimants were entitled to get a consolidated sum of Rs.25,000/- and in respect of serious injuries resulting in permanent disability as defined under S.142, the injured was entitled to Rs.12,000/-. After the 1994 Amendment the compensation payable on the principle of no fault under S.140(2) has been enhanced to Rs.50,000/- and Rs.25,000/- respectively. To claim compensation under S.140 also the Claimant need not plead and establish the negligence of the wrong-doers.

Both these provisions, i.e., Ss.140 & 163-A are clear departure from the common law principle that a Claimant must establish the negligence of the tortfeasors to get compensation. Now let us look into the main distinguishing features of Ss.140 and 163-A. Unlike S.163-A, S.140 is not an independent provision. In a case of fatal accident or permanent disablement a Claim Petition is preferred under S.140(2) read with S.166 of the M.V. Act. Even after receiving compensation under S.140(2) the Claimant is legally entitled to claim further compensation if he is capable of proving negligence on the part of the tortfeasor. This right to claim additional compensation is envisaged as per S.141(1) of the Act. S.141(1) reads as follows:—

"141(1) - Provisions as to other right to claim compensation for death or permanent disablement:—(1) The right to claim compensation under S.140 in respect of death or permanent disablement of any person shall be in addition to (any other right, except the right to claim under the scheme referred to S.163-A (such other right hereafter) in this section referred to as the right on the principle of fault' to claim compensation in respect thereof under any other provision of this Act or of any other law for the time being in force)."

But a person who makes a claim under S.163-A should satisfy with the amount indicated in the second schedule. He is legally debarred from claiming any additional amount towards compensation. This is also made clear under S.141(1) of the Ac t. In short an award passed under S.140 is only an interim award whereas an Award under S.163-A is final. Further, by the introduction of S.163-A Claimants under Motor Vehicles Act are grouped into two categories. One class of claimants who prefers a claim petition under Ss.140 and 166 of the Act and another class who claims compensation under S.163-A. The first class conies under the category of Claimants who have to prove the negligence of the torfeasor and the 2nd class who are not liable to do so. In the first case, the Claimants are victims or legal heirs of victims of a motor vehicle accident which occurred not as a result of any fault or negligence of the victim. The 2nd Class includes even victims who are responsible for the accident. To make it more clear, when an accident happens and a person gets injured or dies due to the wrongful act of another, the injured or the legal heirs of the deceased are entitled to put forward a claim for damages under Ss.140 and 166 of the Motor Vehicles Act whereas a person who sustains permanent disablement or dies because of his own negligence, the injured or the legal heirs of the deceased as the case may be can prefer an application for compensation only under S.163-A of the Act. Thus after the 1994 amendment, by the insertion of S.163-A two types of claim petitions could be entertained. But at the same time a Claimant is barred from relying on both the provisions i.e., 140 & 166 and 163-A simultaneously. The Claimant can opt either of these provisions according to the nature of his claim. This is stated under S.163-B, a Section newly incorporated as per the 1994 amendment. S.163-B says:

"163-B:—Option to file Claim in certain cases: Whereas a person is entitled to claim compensation under S.140 and S.163-A he shall file the claim under either of the said sections and not under both".

The next area where further discussion needed is whether compensation stipulated in the second schedule is applicable to all claim cases irrespective of the fact that such claim is preferred under S.140 read with 166 or under S.163-A. Confusion prevails still in this area and the views also differ. Some are of opinion that the table mentioned in the second schedule is applicable to all cases irrespective of the fact whether the accident had occurred due to the negligence of the victim or not. According to some the schedule is applicable only to cases filed under S.163-A, I think the second view is correct.

On a plain and combined reading of Ss.140, 141, 163-A, 163-B, 166 and 168, I think there is absolutely no room for any ambiguity or confusion. The applicability of the second schedule and fixation of compensation on its basis is mentioned only under S.163-A. The tribunals are not bound to look into the second schedule for fixing the compensation while disposing of a claim petition under Ss.166 & 140. The intention of the legislature in introducing S.163-A and the schedule II table as stated earlier is to enable a victim of a motor accident or his legal heirs as the case may be to get an assured minimum reasonable sum even if the accident had occurred as a result of the negligence of the victim himself. In the second schedule the maximum annual income is also limited to Rs.40,000/-. The legislature might not have thought or intended that a person involved in a motor vehicle accident due to his own negligence and a victim who sustains injury or dies for no fault of his own should get equal amount as compensation. The injured or the legal heirs of the deceased who prefers a claim under S.166 are entitled to get more compensation than fixed under the schedule if he is capable of proving the earning capacity of the victim and the negligence on the part of the tort-feaser. In such cases, the Tribunals are not bound by S.163-A for fixing compensation. As already mentioned in a case filed under S.166, if the Claimant succeeds in proving a higher annual income exceeding Rs.40,000/- the Tribunals are bound to accept the same and award compensation accordingly. Of course, the Tribunal can, in such cases look into the second schedule only for the limited purpose of selecting a suitable multiplier.

The applicability of the second schedule is referred to under S.163-A alone. Nothing has been stated under Ss.166 or 168 regarding the applicability of the schedule. The intention of the legislature is thus made clear. This is further evident from the wording of S.168 which has not been amended in 1994. S.168 says:—

"168- Award of the Claims Tribunal:(1) On receipt of an application under S.166 the Claims Tribunal shall, after giving notice of the application to the insurer and after giving the parties (including the insurer), an opportunity of being heard, hold an inquiry into the Claim or as the case may be each of the claims and subject to the provisions of S.162 may make an award determining the amount of Compensation which appears to it to be just and specifying the person or persons to whom compensation shall be paid and in making the Award the Claims Tribunal shall specify the amount which shall be paid by the insurer or owner or driver of the vehicle involved in the accident or by all or any of diem, as the case may be".

It is pertinent to note that this Section is silent regarding the applicability of S.163-A. Here the Tribunals are given a wide discretion in fixing a just compensation on the basis of the evidence on record. If the legislature had really intended the application of the 2nd schedule in adjudicating a Claim Petition filed under S.166 of the Act, S.168 would have been amended accordingly. This was not done; deliberately too.

Therefore, it can be concluded that strict adherence to the 2nd schedule is to be followed only when the Petition for Compensation is filed under S.163-A of the Motor Vehicles Act; 1988. Such an adherence is not at all warranted when the Claimants application for compensation is one submitted under S.166 (r/w 140).

Buildings (Lease and Rent Control) Rules, 1979 (Kerala) -- Amendment of Rules Dt. 29-11-1994 S.R.O. No.1628/94 --

1995 (1) KLT Kerala Statutes Page 15 - An Inadvertant Omission

(By P.S. Ramalingam, Advocate, Kozhikkode)

Recent amendment of the Buildings (Lease & Rent Control) Rules (K.G. Extra No.1250 dt. 29-11-94 S.R.O. No.1628/94), in short the Rules, is seen published in 1995 (1) KLT Kerala Statutes page 15.

It is seen that various Amendments are made in Rule 4, sub-rule (5) of Rule 5, sub-rule (4) of Rule 6, sub-rule (3) of Rule 7, Rule 10 and sub-rule (3) of Rule 16.

Rule 10 by its conception deals with the time with in which legal representative of a deceased party to the proceedings is to be impleaded and the original Rule prescribes a period of 15 days from the date of death of the party, which is now amended by substituting 30 days.

Likewise sub-rule (3) of Rule 16 deals with tune within which a respondent has to prefer an application to set aside an ex parte order passed against him by the Appellate Authority and the period originally prescribed was 15 days from the date of receipt of the order, which is now amended by substituting 30 days.

But I may humbly point out that the Rule making Authority has not applied its mind properly which effecting above said amendments thereby skipping sub-rule (3) of Rule 13 viz., to substitute 30 days instead of 15 days occurring therein, which is identical to that of sub-rule (3) of Rule 16 but differs only in that it applies to proceedings before the Rent Control Court.

The Rent Control Court as well as the Appellate Authority being persona designate under the Act 2 of 1965, there need not be an unnecessary, distinction between the two with respect to period for setting aside ex parte order passed as per the prevailing sub-rule (3) of Rule 13 and amended sub-rule (3) of Rule 16, especially in view of non-applicability of S.5 of the Limitation Act to those provisions which is concluded by the decision rendered by the Division Bench of Hon’ble High Court of Kerala in Jokkim Fernandez v. Aminakunhi Umma (1973 KLT 138) which has been further reiterated in the Division Bench Ruling rendered in Selvi v. Nataraja Mudaliar, 1994 (1) KLT 82).

The Rule making Authority's attention is kindly invited to the above aspect to make necessary amendment with respect to sub-rule (3) of Rule 13 in consonance with sub-rule (3) of Rule 16.

A Judgment to be hailed on Labour Contract Abolition

(Advocate Thampan Thomas, Ex-M.P.)

"The only ostensible purpose in engaging the contract labour instead of the direct employees is the monetary advantage by reducing the expenditure. Apart from the fact that it is an unfair labour practice, it is also an economically short-sighted and unsound policy, both from the point of view of the undertaking concerned and the country as a whole. The economic growth is not to be measured only in terms of production and profits. It has to be gauged primarily in terms of employment and earnings of the people. Man has to be the focal point of development".

Justice P.B. Sawant and Justice S.B. Majmudar of the Hon'ble Supreme Court of India made the above observation in the case of Gujarat Electricity Board, Thermal Power Station, Ukai, Gujarat v. Hind Mazdoor Sabha and others (JT 1995 (4) SC 264). This is a landmark judgment in the matter of abolition of contract labour system in lndia. They have referred 18 other major cases, in which the Hon'ble Supreme Court have given their verdict from 1958 onwards. The cases referred are,

1. R.K. Panda & Ors. v. Steel Authority of India Ltd. JT 1994 (4) SC 151 - 1994 (S) SCC 304. (Para.37)

2. Dena Nath & Ors. v. National Fertilisers Ltd. & Ors. JT 1991 (4) SC 413 -1992 (1) SCC 695 - Relied. (Para.31)

3. Gurmail Singh & Ors. v. State of Panjab & Ors. JT 1991 (1) SC 351 - 1991 (1) SCC 189. (Para.58)

4. Catering Cleaners of Southern Railway etc. v. Union of India & Ors. etc. JT 1987 (1) SC 3765 1987 (2) SCR 164 - Relied. (Para.30)

5. Food Corporation of India Loading and unloading Workers Union v. Food Corporation of India, 1987 (1) LU 407 (Para.7)

6. Krishna Kurup v. General Manager, Gujarat Refinery Baroda, JT 1986 SC 461 -1986 (4) SCC 375 (Para.58)

7. Bhagwati Prasad Dixit Ghorewala v. Rajeev Gandhi 1986 (4) SCC 78, (Para.40)

8. B.H.E.L Worker's Association Hardwar & Ors. etc. v. Union of India & Ors. etc. 1985 (2) SCR 611 (Para.28)

9. The Workmen of Best & Cromption Industries Ltd. v. The Management of Best & Cromption Engineering Ltd., Madras & Ors. 1985 (1) LU 492 (Para.7)

10. State of U.P. v. Abdul Rashid & Ors., 1984 Supp. SCC 347 (para 40)

11. Hussainbhai, Calicut v. The Alath Factory Thozilali Union, Kozhikode & Ors. 1978 (4) SCC 257, (Para.36).

12. Vegolis Pvt. Ltd. v. The Workmen, 1972 (1) SCR 673-Explained and relied. (Para.26).

13. Sanghi Jeevaraj Ghewar Chand & Ors. v, Secretary, Madras Chillies, Grains Kirana Merchants Workers Union and Anr. 1969 (1) SCR 366 (Para 64)

14. Indian General Navigation and Railway Company Ltd. & Anr. v. Their Workmen, 1966 (1) LU 735 (Para.58)

15. Mohmd. Ayub Khanl v. Commissioner of Police, Madras and Anr. 1965 (2) SCR 884 (Para.40)

16. Akbar Khan Alam Khan & Anr. v. The Union of lndia & Ors. 1962 (1) SCR 779 (Para.40)

17. Standard Vaccum Refining Co. of India Ltd. v. Its Workmen & Ors. 1960 (3) SCR 466 (Para.30)

18. Workmen of Dirnakuchi Tea Estate v. The Management of Dirnakuchi Tea Estate 1958 SCR 1156- Explained and relied. (Para 46)

The learned Judges also have severely criticised the public sector undertakings indulging in unfair labour practice by engaging contract labour when workmen can be employed directly even according to the test laid down by S.10(2) of the Contract Abolition Act. They pointed out that the altitude adopted by them are inconsistent with the need to reduce unemployment and the Government policy declared from time to time to give jobs to the unemployed. They made it clear that these are part of the mandate contained in the directive principles in Arts.38, 39, 41, 42, 43 &47 of our Constitution. While concluding the judgment, therefore, they specifically recommended three things, viz.,

(a) all undertakings which are employing the contract labour system in any process, operation or work which satisfies the factors mentioned in clauses (a) to (d) of S.10(2) of the Act, should on their own, discontinue the contract labour and absorb as many of the labour as is feasible as their direct employees;

(b) both the Central and the State Governments should appoint a Committee to investigate the establishments in which the contract labour is engaged and where on the basis of the criteria laid down in clauses (a) to (d) of S.10(2) of the Act, the contract labour system can be abolished and direct employment can be given to the contract labour. The appropriate Government on its own should take initiative to abolish the labour contracts in the establishments concerned by following the procedure laid down under the Act.

(c) the Central Government should amend the Act by incorporating a suitable provision to refer to the industrial adjudicator the question of the direct employment of the workers of the ex-contractor in the principal establishment, when the appropriate Government abolishes the contract labour.

The directive principles contained in Chapter IV of the Constitution of India are the guidelines to the State and are fundamental in the governance of the country and State have a duty to apply the principles in making the laws, though it cannot be enforceable by any court. During the discussion of the directive principles in the Constituent Assembly, some of the veteran leaders at that time like Sibanlal Saxena and others were of the opinion that the directive principles is to be equated with fundamental rights and they pressed to include them among the fundamental rights. But Dr. Ambedkar, the framer of our Constitution assured the Constituent Assembly that the directive principles are not less important and they are to be considered as sanctions prescribed in 1935 Government of India Act, which leads the nation. He also assured that separate laws will be enunciated for implementing directive principles.

The Contract Labour (Regulation and Abolition) Act 1970 was brought in the Parliament as a measure to achieve the aims and objectives mentioned in the directive principles. Human beings are exploited by persons unscrupulously practising the labour contract system. The commodity and raw-materials involved in a labour contract system are human beings. A contractor, when enters into a contract to supply labour is trading with human beings. His income and profits entirely and fully depend upon the other human beings whom he supplied. It is not the sweat and work of a contractor that gives him the profit. This is the naked form of absolute exploitation. Directive principles of the constitution lays down the principles to secure social order for the promotion of welfare of the people. In Art.38, which reads,

"(1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political shall inform all the institution of the national life.

(2) The State shall, in particular, strive to minimise the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations".

The policies which are to be followed are laid down in Article 39:

The state shall, in particular, direct its policy towards securing –

(a) that the citizens, men and women equally, have the right to an adequate means to livelihood;

(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;

(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment;

(d) that there is equal pay for equal work for both men and women;

(e) that the health and strength of workers, men and women and the tender age of children are not abused and that citizens are not forced by economic necessity to enter avocations unsuited to their age or strength;

(f) that children are given opportunities and facilities to develop in a healthy manner and in conditions of freedom and dignity and that childhood and youth are protected against exploitation and against moral and material abandonment".

Right to work is prescribed in Art.41, which reads:

"The State shall, within the limits of its economic capacity and development, make effective provision for securing the right to work, to education and to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want".

Art.42 prescribes the provision for just and human conditions of work and maternity relief. Art.43 deals with the living wages for the workers. In a contract labour system, the above mentioned principles may or may not be followed. A contractor who supply the labour need not look into the condition of work. Those are the circumstances which are to be provided by the principal employer. The principal employer has not entered into any direct contract with the actual worker and the worker may not be entitled to get such rights from him. These are nothing but exploitation.

The government were aware about such exploitations, even during the period of 2nd Five Year Plan. Planning Commissions made recommendations for study of the problem of contract labour and suggested progressive abolition of the system. After careful examination of the grave problem, the Government found it necessary to abolish labour contract system in certain spheres and to regulate the very system if it is found needed to continue. With these objective, the Contract Labour (Regulation and Abolition) Act, 1970, was brought before the Parliament. The Preamble of the new Act itself states the purpose of the Act, viz., (1) It is to regulate the contract labour wherever it is necessary. (2) To abolish contract labour in certain circumstances. S.10 of the Act prohibits employment of contract labour. S.10 reads as follows:

"10. Prohibition of employment of contract labour.

(1) Notwithstanding anything contained in this Act, the appropriate Government may, after consultation with the General Board or as the case may be, a State Board, prohibit by notification in the Official Gazette employment of contract labour in any process, operation or other work in any establishment.

(2) Before issuing any notification under sub-s.(l) in relation to an establishment, the appropriate Government shall have regard to the conditions of work and benefits provided for the contract labour in that establishment and other relevant factors, such as-

(a) whether the process, operation other work is incidental to or necessary for the industry, trade, business, manufacture or occupation that is carried on in the establishment:

(b) Whether it is of perennial nature that is to say, it is of sufficient duration having regard to the nature of industry, trade, business, manufacture or occupation carried on in that establishment:

(c) whether it is done ordinarily through regular workmen in that establishment or an establishment similar there to:

(d) whether it is sufficient to employ considerable number of whole-time workmen.

Explanation: If a question arises whether any process or operation or other work is of perennial nature the decision of the appropriate Government thereon shall be final".

According to sub clause (1) of S.10, the Government have got the right to abolish the contract labour after consulting the Board by publication in the official gazette.

It has been, all the while, the accepted position up to the judgment, of the Hon'ble Supreme Court in Gujarat Electricity Board, Thermal Power Station, Ukai, Gujarat v. Hind Mazdoor Sabha & Others, that the Act is intended only for abolition of the contract system and never to regularise or absorb the contract labourers by the principal employer. The above judgment specifically recommends the absorption of the labourers, where contract labour system is in practice, having the conditions stipulated in S.10(2) of the Contract Abolition Act 1970. The contract labour system practised in such conditions are to be treated as sham contract and workers are entitled to raise disputes regarding the very existences of such practice and ask for their regularisation. In such circumstances those workers can also raise an industrial dispute and the Industrial Tribunal or any other forum bestowed with the powers of adjudication can decide the dispute. In the cases, Vegolis Pvt. Ltd v. The Workmen (1972 (1) SCR 673) and in case B.H.E.L Worker's Association Hardwar & Ors. Etc. v. Union of India & Ors. etc. (1985 (2) SCR 611) and in Dena Nath & Ors. v. National Fertilisers Ltd. & Ors. (1992 (1) SCC 695) the Supreme Court had directed the respective governments to take action for abolition of the contract system. In the case relating to the Catering Cleaners of Southern Railway etc. v. Union of India & Ors. (1987 (2) SCR 164) the Supreme Court directed the railway to pay wages and conditions at work to the contract employees, doing the same type of job done by the employees appointed by the Southern Railway. In the case, Hussainbhai, Calicut v. The Alath Factory Thozhilali Union, Kozhikode & Others 1978 (4) SCC 257) the Supreme Court defined the relationship of a principal employer and the workers engaged through contractors in the perennial process of production, as an integral part of an industry. In the case, Stand-Vacuum Refining Company of India Ltd. v. Its workmen and Others (1960 (3) SCR 466) classified the work of permanent nature, wherein contract could not be given and where the company has an obligation to select them as permanent employees and also gave the right for Industrial Tribunal to decide these factors even prior to enactment of the Contract Abolition Act, 1970. Relying on this judgment Justice Sawant have indicated that the Industrial Adjudicator have the jurisdiction to determine the status of the workers of erstwhile contractor.

One of the main question in the matter of Abolition of Contract Labour System is whether contract employees are employed in the work which is to be done by permanent workers. In such cases, the permanent workers can raise an Industrial dispute with regard to the absorption of the workers. As law stands on today, the contract workers themselves cannot raise that issue. The Supreme Court in this recent judgment directs the government to bring suitable amendments in this respect. After considering all the aspects of the case in detail, Justice Sawant and Justice Majmudar have given their conclusion on the important question as follows:-

(i) In view of the provisions of S.10 of the Act, it is only the appropriate Government which has the authority to abolish genuine labour contract in accordance with the provisions of the said Section. No Court including the industrial adjudicator has jurisdiction to do so.

(ii) If the contract is sham or not genuine, the workmen of the so called contractor can raise an industrial dispute for declaring that they were always the employees of the principal employer and for claiming the appropriate service conditions. When such dispute is raised, it is not a dispute for abolition of the labour contract and hence the provisions of S.10 of the Act will not bar either the raising or the adjudication of the dispute. When such dispute is raised, the industrial adjudicator has to decide whether the contract is sham or genuine. It is only if the adjudicator comes to the conclusion that the contract is sham, that he will have jurisdiction to adjudicate the dispute. If, however, he comes to the conclusion that the contract is genuine, he may refer the workmen to the appropriate Government for abolition of (the contract labour under S.10 of the Act and keep the dispute pending. However, he can do so if the dispute is espoused by the direct workmen of the principal employer. If the workmen of the principal employer have not espoused the dispute, the adjudicator, after coming to the conclusion that the contract is genuine, has to reject the reference, the dispute being not an industrial dispute within the meaning of S.2(k) of the ID Act. He will not be competent to give any relief to the workmen of the erstwhile contractor even if the labour contract is abolished by the appropriate Government under S.10 of the Act.

(iii) If the labour contract is genuine, a composite industrial dispute can still be raised for abolition of the contract labour and their absorption. However, the dispute will have to be raised invariably by the direct employees of the principal employer. The industrial adjudicator, after receipt of die reference of such dispute will have first to direct the workmen to approach the appropriate Government for abolition of the contract labour under S.10 of the Act and keep the reference pending. If pursuant to such reference, the contract labour is abolished by the appropriate Government, the industrial adjudicator will have to give opportunity to the parties to place the necessary material before him to decide whether the workmen of the erstwhile contractor should be directed to be absorbed by die principal employer, how many of diem and on what terms. If, however, the contract labour is not abolished, the industrial adjudicator has to reject the reference.

(iv) Even after the contract labour system is abolished, the direct employees of the principal employer can raise an industrial dispute for absorption of the ex-contractor's workmen and the adjudicator on the material placed before him can decide as to who and how many of the workmen should be absorbed and on what terms.

In view of the finding of the Supreme Court in sub clause (ii), the existing practices of supply of labour by contractors for the jobs which are connected with the production and perennial nature can be treated as an industrial dispute and the Industrial Tribunal can give award to consider them as permanent workers and give them wages as that of the permanent workers doing similar jobs. The employer can have a case that he may not require all the workers employed by the contractor and also he may have a different criteria for appointing the permanent workers. Taking into account, all these contentions the Court can also go into that question of fact and decide it in accordance with merit. The points raised in the above case with regard to competency of the Industrial Tribunal to make recruitment and create contract against third parties was not accepted by the Supreme Court. They have upheld the right of the Industrial Adjudicator to direct the principal employer to engage ex-contractor's workmen as direct employees. To avoid further complications the Hon'ble Supreme Court has given three specific recommendations mentioned earlier, such as directing the public undertakings to discontinue the contract labour, and to absorb as many of the employees as feasible as there are direct employers and (2) the Central Government to appoint a committee to investigate into the labour contract system and (3) to amend the Act with suitable provisions to refer industrial dispute of contract workers to the Adjudicator.